Trade vital to U.S. agriculture

As the Uruguay Round negotiations were coming to a close in late 1993, one major U.S. newspaper headline asked, "GATT, Why Bother?" For U.S. agriculture, the answer to that question is clear.

Liberalized world trade has never been more critical for U.S. food and fiber exports. it is easy to see why. Production from more than a third of U.S. cropland is exported, and about one-fifth of farmers' cash receipts comes from agricultural exports.

Those exports are vital to the United States because they contribute to farm income, create jobs and stimulate economic activity far beyond the farm gate. They support not only the farm economy, but they contribute significantly to the general economy as well.

U.S. farmers are among the most productive in the world. With less than 7 percent of the world's land and less than 5 percent of the world's population, the United States produces about 12 percent of the world's agricultural commodities. That is why expanding export markets is key to agricultural prosperity.

The domestic market has not grown fast enough to absorb the steady increase in U.S. farm productivity. But in important markets for U.S. exports, populations and incomes are growing at much higher rates than our own. The greatest future market potential for U.S. food and agricultural products is outside the United States where more than 95 percent of the world's consumers live.

The United States is one of the world's top exporters of agricultural products, with a total share of world trade averaging about 15 percent in recent years.

Exports increase efficiency by allowing farmers to more fully use their land, equipment and capital. This contributes to the comparative advantage of U.S. agricultural output and allows the unparalleled productive capacity of the U.S. farm sector to flourish-benefiting U.S. consumers and those around the world.

Agriculture Helps Trade Balance

Agriculture, with a 30-year history of trade surpluses, also contributes positively to the U.S. trade balance.

Agricultural products, which represent 10 percent of total U.S. merchandise exports, were the second largest contributor to the overall U.S. trade balance in 1992 with a surplus of $18.2 billion. This placed agriculture behind the top-ranked industrial sector that supplies U.S. export markets with aircraft, ships and trains ($29.7 billion trade surplus) and slightly ahead of chemicals ($16.8 billion).

Export volume as a percentage of production varies by commodity and, in general, exports are much more important for crops than for livestock. For the 1993/94 crop year, exports will account for an estimated 53 percent of U.S. rice production, 46 percent of our wheat and soybeans, 35 percent of our cotton and 20 percent of our corn.

Exports also account for a substantial share of total utilization for a number of U.S. fruits, vegetables and nuts. In fiscal 1992, exports accounted for 56 percent of all tree nut production, approximately 40 percent of U.S. fresh grapefruit, 32 percent of fresh lemons, 25 percent of fresh oranges, 9 percent of U.S. tomato production and 7 percent of our lettuce and onion production.

The benefits of these overseas sales ripple through the entire U.S. economy. In 1992, all of this export activity generated more than 900,000 jobs, contributed more than $18 billion to the U.S. trade balance and supported a total of about $105 billion in business activity.

Of the nearly 1 million people whose jobs depend on agricultural exports, just over one-third were farm workers. Of the rest, 225,000 people were employed in the trade and transportation sectors, 73,000 in food processing, 96,000 in other manufacturing and 167,000 in the service sector.

Sixty-three percent of the jobs created by exports come from non-bulk products - the fastest growing segment of the U.S. agricultural export picture. High-value products also generate proportionately more jobs than bulk commodities do. For example, the export of $1 million worth of poultry generates twice as many jobs as $1 million in wheat.

Overall, bulk exports, such as grains, oil-seeds and cotton, generated an additional $18.9 billion in U.S. business activity in 1992, while processed products generated an additional $42.8 billion. That translates into $1.09 in additional output per dollar of bulk exports, compared with $1.67 for higher value exports. Overall, that averages out to $1.44 in additional economic output per dollar of agricultural exports.

Agriculture Depends on Exports

Even though farming represents less than 2 percent of the economy, agricultural exports are almost 1 0 percent of total U.S. exports. Clearly, farmers and agribusinesses around the country depend on exports for their livelihood. In fact, it is estimated that exports are about three times as significant for the agricultural sector as they are for the general economy.

The loss of these exports would be devastating - reducing farm prices, farm production and farm income. The loss of farm exports also would trigger increased federal payments under commodity programs that do not fully compensate for the lost income.

USDA economists have estimated, for example, that a 1 0-percent drop in agricultural exports other than fruits and vegetables could increase deficiency payments $29.5 billion over 10 years; increase dairy program costs $3.6 billion; lower cash receipts by $125.4 billion; lower net farm income by $44.6 billion; and lead to a slight decline in farm real estate values.

During the 1950s, exports stagnated, crop surpluses mushroomed and the United States had to implement Public Law 480 and other programs to boost flagging export demand. That same decade, the United States lost 1.7 million farms, the largest number in any decade in the 20th century.

The 1970s were called the period of "export euphoria." Farm income grew rapidly and fueled investment in U.S. agriculture that caused a boom in land prices. The movement of farmers and farm workers out of the agricultural economy nearly stopped in the mid-1 970s. All of this was driven by exports.

Farm exports rose from just $7.3 billion in 1970 to $41 billion by 1980. The financial stress of the 1980s and the crash in equity values largely resulted from the inability to sustain the export growth of the 1970s. If the 1980s had seen half the export growth of the 1970s, farm income would have been dramatically higher.

Because the global economy presents such significant rewards for U.S. agriculture, U.S. farm and trade policies have focused on ways to bolster U.S. exports and to improve the world trading system. Those policies called for negotiation of a GATT agreement that will extend to agriculture the same open trade environment and rules that have governed trade in other industrial sectors for years.

The agreement reached in the Uruguay Round of the GATT holds great potential for providing a sound foundation for continued U.S. success in world agricultural trade. Such success is imperative to the future economic vitality of our farm sector and has major implications for other sectors of the economy as well.

Exports Create Jobs
(per $100 million in exports, 1992/93)

Commodity               Jobs
Poultry                4,772
Pork                   3,678
Cattle                 3,678
Beef                   3,678
Animal fats            3,571
Dairy                  3,497
Cotton                 3,459
Fruits and vegetables  3,132
Sugar                  3,063
Rice                   2,384
Wheat                  2,382
Corn                   2,280
Sorghum                2,247
Soybeans               2,086
Seeds                  1,771

COPYRIGHT 1994 U.S. Department of Agriculture
COPYRIGHT 2004 Gale Group